Insurance Companies: Old Dogs Can Learn New Tricks

Traditionally, captive insurance companies were considered vehicles of "last resort" to insure risks for which commercial carriers either were unable or unwilling to provide coverage. For example, during the last two decades, colleges and universities formed captive insurance companies to ensure that affordable professional liability or property and casualty insurance coverage would be available. Increasingly, however, captives are being considered for almost any situation in which a future payout will be required. Many colleges and universities, for example, are using a captive as a creative solution for providing competitive employee benefit packages in the face of skyrocketing costs. Institutions have turned to captive insurance companies to provide health, life, disability, long-term care insurance and retirement benefits for their faculty and staff -- both current employees as well as retirees.

What doesn't surprise college and university administrators is that they are better able to manage their risks than an outside provider because the university understands and appreciates its historical risks. What does surprise employers is the degree of savings that may result because of enhanced risk-management strategies that lead to reduced claims and reduced premiums.

In the captive insurance context, colleges and universities can be divided into three broad groups: (1) tax-exempt organizations that have significant professional liability risks (e.g., because of a medical school or a university-related hospital); (2) tax-exempt organizations that have non-professional liability needs (e.g., property insurance and employee benefits); and (3) governmental entities that have professional and/or non-professional liability needs. The benefits available to each group will depend on the manner in which captive arrangements are structured. A properly structured captive may be able to be used to insure the risks of related or affiliated entities.

For additional information regarding how a captive insurance company could serve the needs of your institution, please contact Michael Buker or a member of the Ice Miller College and University Group.

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader must consult with legal counsel to determine how laws or decisions discussed herein apply to the reader's specific circumstances.